Plansmith Blog

Liquidity: Read all about it!

Posted by Dave Wicklund on 2/5/24 9:16 AM

What do massive shifts in deposits, a possible impending recession, and a tremendous hike in interest rates have in common? Absolute potential for wreaking havoc on your institution’s liquidity position. One unplanned or mismanaged situation could mean falling out of policy limits, or worse.

Before we dig into what the present state of the economy could mean for your organization’s liquidity position, let’s make sure we’re on the same page with what we’re discussing. Per the OCC, “Liquidity is the risk to a bank's earnings and capital arising from its inability to timely meet obligations when they come due without incurring unacceptable losses. Bank management must ensure that sufficient funds are available at a reasonable cost to meet potential demands from both funds providers and borrowers.”

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The Power of Playbooks: A Blueprint for Success

Posted by Craig Hartman on 1/11/24 11:19 AM

In the face of complexity and uncertainty, human instinct seeks order and guidance. A playbook, whether etched on ancient clay tablets or stored in modern cloud servers, provides this very structure. It transcends a mere collection of rules; it's a living document, a distilled wisdom of past experiences, offering a roadmap for navigating future challenges. The benefits of a well-crafted playbook are manifold, weaving their magic across both individual and collective endeavors.

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Ask an Expert: Top Priorities for 2024

Posted by Dave Wicklund on 1/9/24 1:01 PM

"Which measurements would you put highest priority on in 2024?"

I’d say that Net Interest Margin (NIM) changes and Economic Value of Equity (EVE) should continue to be the primary focus of IRR management in 2024. Gap calculations rarely give the full picture (focused on timing of reprice, and not magnitude), and Duration measurements can be difficult to understand. Given the extreme rate increases in the past two years and the bank failures in 2023, all financial institution managers and directors should have a clear understanding of how future market rate changes could impact both shorter-term earnings (aka the NIM in the next one and two years) and longer-term capital values (aka the EVE).

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Three Most Frequent Pitfalls of Interest Rate Risk Management Programs

Posted by Dave Wicklund on 12/4/23 11:00 AM

Establishing and maintaining a sound interest rate risk (IRR) program is crucial to ensure proper balance sheet structure and comply with Regulatory expectations. During my 20+ years as a senior FDIC examiner, I routinely saw organizations experiencing issues with their ALM/IRR practices, ranging from loose misunderstandings of the guidance to critical errors that put the health of the organization at risk. Unfortunately, in my current advisory role, I see the same issues all too often.

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Surge Deposits: Straight Up with a Twist

Posted by Dave Wicklund on 11/1/23 10:59 AM

For the past few years, I’ve written about the varying circumstances surrounding Surge Deposits. From “the death of” to the “resurgence,” it seems to be a consistently hot topic – this year, with a slight twist. While previously keeping a close watch on the influx of demand deposits, we’re now seeing increased pressure on funding flowing either from non-maturity deposits (NMDs) into higher costing CDs, or out of financial institutions all together. 

Before we get further, if you haven’t yet read my other blogs discussing Surge Deposits, or could use a refresher, click here to do so.

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Don’t Just Budget, Control Your Results

Posted by Craig Hartman on 10/2/23 12:35 PM

Are you really planning, or are you just budgeting?

By this I mean, are you filling out the numbers on a spreadsheet or planning the actions needed to make it a reality?

It’s always gratifying when all the numbers come together in a neat package showing expected growth and earnings for next year. And, there were likely many contributors who verbally expressed their goals and plans on how they are going to reach them. The compiled financial targets are then presented to and accepted by the board, and your monthly comparisons begin. Budget “predictions” are compared to reality. Variances from “budget” are explained, and business continues as usual. In essence, that’s budgeting.

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Branch Profitability

Posted by Sue West on 9/5/23 9:37 AM

Our recent blog discussed Product Profitability, or the process of analyzing your product line by looking at each asset category and adjusting its yield by adding non-interest income, and subtracting applicable loan losses and overhead. The overhead we associated with the asset was its funding liability cost less applicable service charges. This gave us a more heightened awareness of the true earning potential of each earning asset.

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Product Profitability and Funding

Posted by Sue West on 8/7/23 12:04 PM

As increased competition and consolidation challenge the financial industry, your business must continue to adapt using strategies for success, not unlike those of other businesses.

Manufacturing and retail have long used product management techniques to meet competitive pressures for pricing, product planning, and growth strategies. If financial institutions are to survive and prosper in this highly charged competitive environment, management must understand and control all components of profitability. Margin and equity risks have been addressed using regulatory rate shock methodologies, as well as recommended and required stress testing of the loan portfolio, including loan losses. Product profitability combines these concepts with an often-overlooked element of cost – overhead.

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Planning: Many Aspects, One Purpose

Posted by Sue West on 7/17/23 11:01 AM

I’m often asked, “What are the differences between a plan, a budget, forecasting, reforecasting, what-ifs, and stress testing?” Although some of the actions are similar and often intermingled in conversation, it’s their purpose that defines them. If you’re a client, most even involve similar keystrokes using your Plansmith software navigation; yet each plays a unique role within your organization’s total planning process. Let’s discuss.

Budget

To start, everyone’s familiar with a budget, but let’s make sure we see it for what it really is. A budget is a prediction or forecast of a financial position at a set time in the future, typically one year. A budget represents a desired financial outcome and requires consent by your board of directors. Most often a Budget is primarily thought of as cost allocations, but when combined with ideas regarding new business, you will often hear it referred to as a Plan. Once approved, the Budget Plan never changes. It is ‘set in stone’ for the duration of your selected time period.

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Managing Adversity: A Framework for Success

Posted by Sue West on 6/19/23 10:03 AM

Uncertainty and volatility seem to be the only consistent elements concerning the post-COVID economy. So, how do you adequately measure the financial impact today’s economic landscape will have on your business? By utilizing a true planning model.

A professional forecasting platform for Budgeting and ALM/IRR adapts to changing conditions. As it is relationship-driven, it can be set to react to environmental changes, including rates. As the rate environment shifts, so should your balance sheet growth and product mix. Planning models help you test the impact of such changes and measure results in minutes, not hours.

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